Saturday, September 23rd 2023

Echo Energy PLC

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Is this Echo getting Bigger and Louder


“…With a suite of promising assets rapidly coming back into full production Echo looks well set for the year ahead…”


South American-focused oil and gas exploration and production company Echo Energy Plc (AIM:ECHO) is piecing together the foundations for a strong year following a challenging 2020.

Led by oil and gas investment banker CEO Martin Hull Echo is positioned to take advantage of Latin America’s fast growing energy market, which has tripled in the last 40 years, with gas making up an increasing proportion of the energy mix as countries seek to reduce their reliance on LNG imports.

Echo pursues a full-cycle strategy, balancing exploration and production between its two primary assets. The company has a 70pc interest in the 2693 km sq Santa Cruz Sur licence located in southern Argentina’s onshore Austral Basin. Santa Cruz consists of 12 oil and gas fields producing from the Upper Jurassic and Lower Cretaceous conventional reservoirs, with respective 1P and 2P reserves – net to Echo – of 4.3 MMboe and 13.7 MMboe. Before the pandemic Echo’s share of Santa Cruz’s production was 2,633 boepd (H1 2019). Since acquiring its interest in the licence the company has identified the prospective Campo Limite exploration well.

Echo’s other primary asset is its 19pc interest in the 5,187 km sq Tapi Aike gas exploration permit close to Santa Cruz, which has estimated gross unranked prospective resources of 4.2 Tcf (trillion cubic feet) mid case, 6.0 Tcf Pmean, and 12.4 Tcf high case. Legacy 2D and recently acquired 3D seismic data has identified four exploration wells and more than 40 leads.

Echo also has interests in two blocks in Bolivia, where together with its project partners it is currently reprocessing evaluating legacy seismic.

Making the best of a tough 2020


As with so many others Echo’s high hopes for 2020 were blighted by the twin blows of the pandemic and the oil supply glut, restrictions on field operations and crashing oil prices obliging the company to shut-in several producing oil wells. Testing was suspended at the Campo Limite well, which at the turn of 2020 had encountered elevated gas shows of 193,000 parts per million (ppm) against a background of 20,000 ppm, and encouraging wireline log data. The testing of the well, which is resuming as pandemic restrictions are eased, remains a commercial and operational priority for Echo.

The company was however able to advance some new prospects. Production at the Monte Aymond gas project was increased to an average flowrate of 5 MMscf/d, ensuring its commercial viability, either as a micro LNG option or via a hub development approach. It identified an initial portfolio of sixteen low cost workover and intervention operations across Santa Cruz Sur. And an exploration well at Tapi Aike produced data indicating the presence of a working petroleum system.

In December Echo confirmed that it had been able to achieve steady gas production through the year. Santa Cruz production levels for the period from 1 January to 17 November 2020 were, in line with the company’s expectations with average daily rates (net to Echo) of 1,990 boepd (including 10.3 MMscf of gas) per day. Total cumulative production net to Echo was 640,606 boe (including 3,329 MMscf of gas), with gross gas production at 14 MMscf/d (10 MMscf/d net to Echo).

And with pandemic restrictions easing and market conditions improving the company has been able to gradually bring Santa Cruz oil wells back into production. Since July net daily oil production has increased by 109pc with cumulative net oil production of 17,859 bbls. The resumption of three additional wells since November brought gross oil production to approximately net 210 bopd.

Indeed Echo reported that the seven-month shut in period and subsequent production start up had allowed the company to accumulate subsurface data indicating ‘the potential for significantly increased production levels’, a prospect confirmed by post-shut in pressure. The indicates a gross production potential of between 126 bopd and 189 bopd (88 bopd to 132 bopd net to Echo) subject to availability of increased liquid storage and separation facilities at the field

Echo began the year on positive note by announcing a cooperation agreement with GTL International, the oil and gas subsidiary of Bolivian mining, real estate and energy corporation UruboCorp to ‘identify and assess new business development opportunities across the full energy spectrum’.

Prospects for 2021


With a suite of promising assets rapidly coming back into full production Echo looks well set for the year ahead, with investor confidence reflected in the rapid doubling of its share price through December.

With net borrowing of £20.6m the company needs a strong return on the assets in which it has invested. Echo’s most recent interim report stated total revenue to 30 June 2020 of $5.6m, $3.5m and $2.1 relating respectively to gas and oil sales, up from $2.7m in the 2019 period. The company posted a loss after tax for the period of $5.7m, down from $7.7m for 2019.

Last December Echo announced an agreement with its debtors whereby the maturity on its debt would be extended by three years to April 2025, allowing it to release capital to fund its current development projects and support future acquisitions. The same announcement stated that the company had concluded a £0.7m fundraise to further boost working capital. The company is also working to reclaim some $1.4m from VAT paid to the Argentinian state: in December there was progress when the company was freed from a VAT obligation on a portion of its Santa Cruz operations. As of 17 November 2020 Echo held total cash on deposit of approximately $655,000.

Another favourable tailwind is the prospect of further stabilisation of Argentina’s economic environment, which has been unsettled by an ongoing dispute with the IMF over debt restructuring following a multi-billion 2018 loan. The election of a new government in 2019 has increased prospects of an agreement, gradually paving the way for Argentina to more fully realise its potential as one of the emerging markets increasingly attractive to investors looking for growth stories beyond the US’s vertiginously valued tech sector.

The rally in its share price at the turn of the year notwithstanding Echo’s stock is still just 0.6p. The company’s current market cap of £8.2m may begin to look cheap if kinder conditions in 2021 help it unlock the potential of its Santa Cruz and Tapa Aike licences.

Echo Energy PLC was also featured in the @TMSreach 10 Oil and Gas companies to follow for 2021